GAO: Some hospitals pocket savings from program meant to lower costs for low-income patients

WASHINGTON — A federal program that requires pharmaceutical manufacturers to sell discounted drugs to certain health care providers was intended to expand services and lower costs for low-income consumers. But federal investigators found some hospitals are keeping the savings.

The Government Accountability Office found that 16 of the 28 hospitals it surveyed that are covered under the 340B program did not provide any discount to patients at pharmacies that are contracted to distribute drugs on their behalf. The program requires Medicaid-participating drug companies to offer discounts on outpatient drugs to qualified hospitals and clinics.

“This program is supposed to lower costs for low-income patients, that’s one of the goals,” said Sayeh Nikpay, an assistant professor in the Department of Health Policy at Vanderbilt University. “(The report) implies that the savings from those drug sales are just being retained as revenue that the hospital does something else with.”

Discounted purchases under the program were estimated to reach $16 billion in 2016, a 30 percent increase from 2015 and four-fold jump since 2009, Health and Human Services Secretary Alex Azar said in statement Monday.

Hospitals are supposed to use the savings to improve safety-net care for patients, but neither government agencies nor research communities can verify whether that is happening because hospitals are not required by law to disclose where their 340B-related revenue goes, Nikpay said.

The absence of statutory oversight is likely to divert the program’s savings from supporting low-income patients, Azar said.

The 340B program is designed to allow health care providers to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,” according to the official website of Health Resources and Services Administration, which is charge of the program.

The ambiguity in the program’s intent has led to debates in the Congress over how hospitals should use the money.

“We’re trying to lower the out-of-pocket cost to the low income patients,” Rep. Joe Barton, R-Texas, said Wednesday at a hearing on Capitol Hill. “There’s no question in my mind the intent was to pass through these lower drug cost to the patients taking the drug.”

But Rep. Doris Matsui, D-Calif., countered that instead of passing the discounts directly to patients, the 340B program is “for the providers to ensure they are able to best serve the vulnerable low income patient population.”

Rep. Michael Burgess, R-Texas, has proposed a bill that would require health care providers participating in the program to pass at least partial discounts on 340B drugs directly to low-income and uninsured patients.

Some hospitals said they have invested revenue generated from the program into upgrading or expanding services for patients.

Dallas-based Parkland Health and Hospital System has developed with 340B savings an electronic system to track whether patients have been filling their prescriptions, according to its president and CEO, Frederick Cerise.

And UC San Diego Health in California has used 340B profit to fund HIV/AIDS clinics and send staffers to treat patients in the area that experienced hepatitis A outbreak in 2017, pharmacist-in-chief Charles Daniels said.

“The beauty of the original legislation is that it allows the covered entity to make the estimate of how they can best serve their underserved patients,” Daniels said. “That doesn’t always mean giving [discounts] directly back to them, but it always means that it goes back to them.”

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The stories here were reported, written and produced by Northwestern University graduate journalism students in the Washington program of the Medill School of Journalism, Media, Integrated Marketing Communications . Most also were published or broadcast by media organizations served by the school's unique news distribution plan. We specialize in enterprise reporting, multimedia and online journalism, as well as on accountability, working to uncover misbehavior by people in power.